Enterprise Resource Planning Essay
Enterprise Resource Planning
Q.1. What are the advantages of the re-engineering method of implementing ERP? Ans: The success of ERP depends upon the methodology used for its implementation to a larger extent. A good implementation methodology leverages intellectual capital and provides successful linkage of work efforts. Information systems technologies are evolved from mainframe based computing through the client server era, to where we are now heading – the internet era. Reengineering identifies, analyzes, and redesigns an organization’s core business processes with the aim of achieving dramatic improvements in critical performance measures, such as cost, quality, service, and speed.
In re-engineering approach, the team selects a commercial off-the-shelf ERP and re-engineers business processes to fit the package. An in-depth analysis of the trade-offs shows re-engineering the business to fit the software can disrupt the organization because this represents changes in procedures, work flows and data. Following are the advantages of re-engineering method of implementing ERP: (i) Re-engineering Business Process – It supports re-engineering processes to fit the software system’s best practices. (ii) Timeline – The software or solution is available in the market and ready to implement. (iii) Cost – Implementation is cost effective here.
Re-engineering approach is supported by an ERP solution, takes advantages of shared or generic processes within industries, best practices may represent improved process changes, documents best practices, works well when there is minimal organization change.
Other than the specific advantages of ERP implementation in any organization, below are some of the generic yet effective advantages:
(i). Business process is streamlined.
(ii). Business process is optimized and more efficient.
(iii). Strict controls can be enforced and monitored.
(iv). Best practices can be adhered to.
(v). Time and cost saving as a result of eliminated redundant tasks.
Q.2: What are the benefits reported from implementing ERP?
Ans: A true Enterprise Resource Planning (ERP) system integrates both internal and external information flows used by the organization within a single, comprehensive solution. An ERP solution incorporates the practical systems used by organizations to manage the basic commercial functions of their business, such as: planning, inventory/materials management, purchasing, manufacturing, finance, accounting, human resources, marketing and sales, services etc. The objective of the ERP solution is to drive the flow of information between all internal business functions while managing connections, or “touchpoints,” to outside stakeholders. Follow are the some of the benefits of ERP:
• Tighter controls for financial compliance declaration (e.g. Sarbanes-Oxley and Basel II) as well as other forms of compliance reporting. • The single data source for product and services information – such as information related to suppliers, vendors, customer orders and the products themselves – drive rapid product development and launch cycles which increases a company’s overall market share. • Increased access to valuable corporate data delivers a clear, global view of the business that drives continuous improvement strategies and establishes common performance metrics and measures to gauge the health of the business.
• Effectively managing projects holistically fosters decision making at critical levels in the development and/or manufacturing process. • Support for streamlined sourcing and procurement processes drive alignment to customer demands, and also deliver a centralized buying model to reduce unauthorized and unnecessary expenses. • Providing sales and operations planning with access to critical information fosters “closed loop” processes that ensure the business does not overpromise and/or under-deliver to customers. • Automating business processes such as invoicing and sales and purchase orders within one systems improves forecasting accuracy and reduces inefficiencies. • Using a single base of information for billing and other customer interactions improves service levels and increases customer retention.
Q.3: Write a short note on “Credit Management”.
Ans: Credit management is the process of controlling and collecting payments from customers. This is the function within a bank or company to control credit policies that will improve revenues and reduce financial risks. Good credit management is vital to your cash flow. It is possible to be profitable on paper and but lack the cash to continue operating your business. It is best to minimise the likelihood of bad debts through good credit management practices. Prepare your own policies and procedures for credit management e.g. terms and conditions, invoicing promptly and monitoring your debts. Terms and conditions
– Clearly state in writing your terms and conditions of trade and your credit policy in writing.
– Draft terms and conditions that suit your business.
– It is advised you seek legal advice before finalising the document to ensure it has internal consistency and covers all the key issues.
– Ensure the document does not contain any illegal terms and can be relied on in the event that court action is necessary to recover a debt.
– Include your terms on all quotes, estimates, contracts, agreements, purchase orders, and related documentation.
– Clearly specify what will be supplied, when the work will be done, and when and how payment is to be made.
– Obtain a written acceptance of the agreement along with written approval of any variations to the original agreement.
Include accurate details on your invoice for the goods or services supplied the amount due along with the date and preferred payment method. Always try to resolve invoice queries or disputes quickly.
Maintain your debtors’ records to identify any due or overdue debts. Develop a good records management system and keep records up to date so you can quickly identify who owes you money and how much is owed. Take a proactive approach to credit management by contacting clients a few days before the due date to remind them a payment is due and ask if they foresee any problems with meeting their payment. Implement your debt collection practices the minute a debt becomes overdue and ensure clients do not exceed their credit limits.
Q. 4. Define Material Requirements Planning.
Ans: The APICS dictionary defined material requirement planning (MRP) as “a set of techniques that use bill of material, inventory data and master production schedule to calculate requirement for material.” In other words, Material requirements planning (MRP) is a production planning and inventory control system used to manage manufacturing processes.
Most MRP systems are software-based, while it is possible to conduct MRP by hand as well. MRP systems use four pieces of information to determine what material should be ordered and when: – The master production schedule, which describes when each product is scheduled to be manufactured; – Bill of materials, which lists exactly the parts or materials required to make each product; – Production cycle times and material needs at each stage of the production cycle time; – Supplier lead times.
The main theme of MRP is “getting the right materials to the right place at the right time” and it is intended to meet three objectives: – Ensure materials are available for production and products are available for delivery to customers. – Maintain the lowest possible level of inventory.
– Plan manufacturing activities, delivery schedules and purchasing activities.
Requisites for successful implementation of MRP system:
– Several requirements have to be met, in order to given an MRP implementation project a chance of success: – Availability of a computer based manufacturing system is a must. Although it is possible to obtain material requirements plan manually, it would be impossible to keep it up to date because of the highly dynamic nature of manufacturing environments. – A feasible master production schedule must be drawn up, or else the accumulated planned orders of components might “bump” into the resource restrictions and become infeasible.
– The bills of material should be accurate. It is essential to update them promptly to reflect any engineering changes brought to the product. If a component part is omitted from the bill of material it will never be ordered by the system. – Inventory records should be a precise representation of reality, or else the netting process and the generation of planned orders become meaningless. – Lead times for all inventory items should be known and given to the MRP system. – Shop floor discipline is necessary to ensure that orders are processed in conformity with the established priorities. Otherwise, the lead times passed to MRP will not materialize.
Section B – Caselets
Q.1: What factors should it use to evaluate each of these potential hosts? Ans: Following are factors one should consider while going for ERP: Like most business applications, there is a growing trend to move ERP software like Microsoft Dynamics GP away from on-premise installations and towards cloud based solutions. There can be tremendous cost savings in this model, as well as better infrastructure. Since a Cloud Vendor is responsible for hosting the ERP solution, and since that cost is amortized across thousands of companies, it is possible for business of any size to have 24x7x365 monitoring, and continuous back-up and disaster recovery procedures. If you are evaluating moving to a Cloud ERP solution, there are 4 main points you should keep in mind.
Service Level Agreement
When software is hosted on your servers, you control availability and up time (which can be both good and bad, depending on your IT resources). When you move to the Cloud, all that control is transferred to the host. Ask your vendor if they have a Service Level Agreement, and how much uptime is guaranteed. And be wary of the number – 99.9% may sound great, but if your business runs 8-5 daily, that still translates to 1 hour of down time per month.
Another potential source of lost productivity is having your staff log-in one day to discover they have a new and unfamiliar version of software, due to an update. Therefore, it is crucial to know how the vendor handles updates. How soon in advance will you be notified? What impact will it have on day to day operations at the time of upgrade? Will you be able to have input on the actual date of an upgrade?
Your hosting provider should give you a fully detailed overview of how they handle security, including their approach and what specific measures they take. Ask them how they authenticate users. What level of encryption do they use to protect data? Are they compliant with regulations affecting your business, such as SAS70 and SSAE-16?
Even though your data is hosted elsewhere, it is your data and you own it. Will the host allow you to export a full set of your data anytime you request it? Will they fully delete your data upon request, should you decide to move to a different host? What happens to your data if you miss a scheduled payment?
Q.2: What controls should be in place to monitor the hosting arrangement?
Ans: Following are the controls that organization needs to perform before implementing the ERP solution. (i) Lack of Alignment of the ERP system and business Processes In order to minimize the risk associated with a lack of alignment of the ERP system and business processes, organizations engage in Business Process Reengineering (BPR), develop detailed requirements specifications, conduct system testing prior to the ERP system implementation and closely monitor system performance. an organization should reengineer business processes, develop a detailed requirements specification, conduct system testing prior to the system implementation and closely monitor the system’s performance.
(ii) Loss of Control due to decentralization of decision making Through the formulation of a steering committee, appointment of a project sponsor, and internal audit involvement, an organization could minimize the loss of control associated with decentralization of decision-making. A steering committee enables senior management to directly monitor the project team’s decision-making processes by having ratification and approval rights on all significant decisions, thereby ensuring that there are adequate controls over the project team’s decision-making processes. Through the formulation of the steering committee, appointment of a project sponsor, and internal audit’s involvement the organization would minimize the business risks associated with possible loss of control resulting from the ERP system implementation.
(iii) Project complexity
The minimization of the risks associated with project complexity largely depends upon the formulation of a steering committee, senior managers’ support, appointment of a project sponsor, the development of a detailed implementation plan, project management, a project team with adequate skills, and involvement by both consultants and internal audit.
(IV) Lack of in house skills
Consultants are able to use their previous ERP systems implementation experiences; consequently, they can act as knowledge providers who lower the knowledge deficiency existing within organizations. An organization, however, cannot completely rely on consultants to implement an ERP system, as consultants have limited specific knowledge of the organization’s operations. Thus, a close working relationship between consultants and the organization’s project team can lead to a valuable skill transfer in both directions.
(V) Users’ resistance
User resistance has been associated with most any type of systems change, and even more so for ERP projects that are combined with BPR (since the users are worried that their job may at worst be eliminated, or at best be changed from their “usual” way of doing things). Workers who are reengineered out of a position and are subsequently redeployed within the company may enter a grieving process resulting in low productivity. Consequently, organizations often implement some risk management strategies to minimize users’ resistance.
Section C: Applied Theory
Q.1: Explain in brief Sales and Marketing Modules in ERP System. Ans: Sales module which also known as Customer Relation Management (CRM) in an ERP system is the most important and essential function for the existence of an organization. Sales module in an ERP system manages the functions of domestic and export sales of a company. This is the module that maintains the customer and product database. Functions of sales module also includes the interacting enquiries, order placement, order scheduling and then dispatching and invoicing form the broad steps of the sales cycle. Stock transfer between warehouses is also covered by this module. Apart from these entire functions Sales module also carry out the task of providing analysis reports to guide decision making and strategy planning. Organizations always wanted to have a good and fighting sales and marketing force to compete in the market.
A comprehensive sales and marketing ERP module will help a company stay competitive and streamline their sales and marketing activities. Sales and marketing module in an ERP system allows activities such as contacting customers and tracking of each customer orders right from placing an order to dispatch of material for that particular order and customer. This module also helps allows sales executives to contact customers and follow-up each and every sales invoice and receive payments for such invoices. Another important aspect of sales module is it allows management to monitor sales target achieved by individual marketing personnel as per the target planner for each marketing personnel. This feature in of the sales module in the ERP system enhances the working of the marketing department and ensures personnel are not on the right direction.
A good sales and marketing module also has features to track lost orders and identify the reasons for loosing those orders. Business partners and franchises are a common phenomenon in today’s world. Latest ERP software will associate marketing personnel to their business partners and franchises and allow them to track and monitor their performance. ERP sales module can also track sales trends over different periods and prepare the report, Sales forecast can be made using this module as well as provide all over sales and marketing activities of the company. The ERP module offers an effective customer complaint management tool which also includes repairs processing and document management.
Q.2: What are the different development process in ERP systems and write a detailed note on it? Ans: The development process in ERP systems consists of four stages or phases namely selection, definition, implementation and operation. They have been defined in detailed below: (i) The Selection Phase: The objective of this phase is to identify the ERP package most appropriate for the organization and the technological infrastructure needed for it. When the decision is to implement components from several ERP packages, the objective is to identify the optimal components. If additional external human resources are needed, the selection of the consulting firm is also part of this phase. The phase is comprised of nine activities; definition of project objectives, collection of information about system and vendors, collection of information about consulting firms, Needs Analysis, Investigation of vendor alternatives, investigation of consultant alternatives, collection of information on the technological infrastructure, Feasibility study, contract negotiation and signing.
(ii) The Definition Phase: This phase is the shortest of the four ERP life cycle phases. It includes all the preparatory activities for the implementation phase that follows. The phase is comprised of three steps: – Definition of project scope: Project scope is determined on the basis of the system selected in the previous stage. This activity is performed by personnel from the IS department and user representative in cooperation with the vendor and the consultants. – Establishing implementation teams and timetables: the teams include personnel from the ERP vendor, from the consulting firm and from the organization. The division of responsibilities among the three depends on each one’s experience in ERP implementation; in implementing IS application in general and in managing an organizational change. – Training of the implementation teams – the objective is to train key users and management representatives, who are member of implementation team, in the use of the selected system. (iii) The implementation Phase: This is the main phase of the ERP life cycle.
Its objective is to link the ERP system to the organizational processes so that when the system moves to the operation phase, its contribution to the organization would be at the maximum. The implementation phase is performed iteratively, according to one of the following maximum: – Adding processes: in each successive round, one or more additional processes are implemented in all organization sites. – Adding Organizational Layers: in each round, a new organizational entity is added to the computerized processes. This method facilitates getting a clear picture of system use in all activities at an early stage. (IV) The operations Phase: This phase is the longest phase of the ERP life cycle and can last several years. Five steps are included in this phase. Establishment of support centres: These constitute a learning network in the organization, whose objective is to develop user training tools and to support ongoing operations.
The need for a support centres increases directly with the complexity of the system. Performance of changes and enhancements: These are needed over time due to organizational dynamics, changes in business strategy, technological and environmental change and the like. They can be handled by adding new processes to the system or by expanding existing one. Upgrading the system: The objective in this step is to watch the software updates of the vendor, the technological changes and to upgrade the ERP modules by adding activities and functions facilitated by the updates.
System Audit: Similar to other life cycle models, the objective is to verify whether the system meets users’ needs. This audit is performed periodically. System termination: This step is analogous to the termination activity of the traditional SDLC. Due to the strategic importance of an ERP system and its close linkage to organizational processes, it seems that replacing the system is much more complex and difficult than replacing conventional applications.